State Govt levies take sting off tax breaks for cars

The Central government’s plan to revive demand for the ailing car industry with excise duty cuts totalling 8 per cent is coming undone because of state-level levies that substantially negate the price effect.

The Centre proposes, the state disposes. The Central government’s plan to revive demand for the ailing car industry with excise duty cuts totalling 8 per cent is coming undone because of state-level levies that substantially negate the price effect.

Atleast six states, including Andhra Pradesh, Tamil Nadu, Karnataka and Gujarat have increased road taxes after excise duties on small cars were slashed by 4 percentage points in February 2008. Some 10 states including Delhi are looking to hike road taxes again after the second round that came as part of the stimulus package last month.

So, the price tag in the showroom means very little.

“The industry needs a big bang approach and the government has already done its bit by affecting the CENVAT (Central value added tax) cut in December. In many cases however, it could be negated by states raising registration and road taxes or imposing new taxes,” said Dilip Chenoy, Director General, Society of Indian Automobile Manufacturers (SIAM).

In the last one year, a number of states have tried to transfer the benefits of central excise cut to their coffers.

Gujarat for example, imposed a 20 per cent surcharge on VAT in April, while Tamil Nadu and Karnataka raised road tax by 2 per cent in June and August.